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Dovish Yellen drives down US Dollar, ignites rallies in Gold, AUD, NZD and stocks

Dr. Yellen came out clearly on the dovish side, confirming a slower pace of interest rate increases are planned due to global economic and financial market volatility. She dropped her previous reference to April being live for a rate hike suggesting the two hikes currently forecast for this year may come in June and December before and then after the party conventions and the Presidential election campaign.

She also make comments related to uncertainty over whether recent rises in core PCE inflation being normal fluctuations or the start of a trend and that she thinks the current neutral rate (neither expansionary nor contractionary) is currently near zero but can rise if inflation picks up. These comments can also be seen as dovish, indicating that she doesn’t think the Fed is falling behind the inflation curve and therefore likely isn’t in a hurry to raise interest rates in April.  

Her comments sent USD sharply lower, sparking rallies in gold and a number of major paper currencies with AUD and NZD being the biggest beneficiaries but CAD, EUR and GBP also posting significant gains on the day.  

Crude oil spent the first part of the day under pressure but rebounded moderately in the afternoon along with other markets. API payrolls improved in that they didn’t go up as much as last week, so we could see more activity around tomorrow’s DOE inventory reports.

Tomorrow brings ADP payrolls but it would take a really big surprise at this point say 300K+ to change the dovish Fed perceptions that were reinforced by today’s speech from Chair Yellen. Speeches from Chicago Fed President Evans Wednesday and NY Fed President Dudley Thursday may reinforce the dovish case with the next comments from the hawkish faction not scheduled until Cleveland Fed President Mester speaks on Friday.

Corporate News

There have been no major corporate announcements after the US close today

Economic News

Significant announcements released overnight include:

US API crude oil inventories    2.6 mmbbls vs previous 8.8 mmbbls

US consumer confidence    96.2 vs street 94.0

Canada industrial prices        (1.1%) vs street (0.2%)
Canada raw material prices    (2.6%) vs street (0.9%)

Upcoming significant economic announcements include:

(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)  

10:50 am AEDT        Japan industrial production        street (1.7%)
12:45 pm AEDT        China consumer sentiment        previous 111.3

9:00 am BST        Norway unemployment rate        street 4.5%

1:00 pm BST        Germany consumer prices        street 0.1%

8:15 am EDT         US ADP payrolls            street 197K vs previous 214K

10:30 am EDT        US DOE oil inventories            street 3.1 mmbbls
10:30 am EDT        US DOE gasoline inventories        street (2.5 mmbbls)

1:00 pm EDT        FOMC Evans speaking


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